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Bioverativ Could Be Why Investors Should Buy Biogen

The fast-approaching spinoff of Biogen's hemophilia business may make picking up shares in Biogen a savvy move.

Biogen(NASDAQ:BIIB) is planning to spin off its hemophilia drug business to investors early in 2017, and given that third-quarter earnings show demand for Eloctate and Alprolix are at record highs, the potential to get shares in this new company, Bioverativ, may be a good reason to add Biogen stock to portfolios.

Reshaping hemophilia treatment

Eloctate, for the treatment of hemophilia A, and Alprolix, for the treatment of hemophilia B, are novel, long-lasting drugs that reduce patient burden by shrinking the number of doses weekly versus prior-generation therapies.

The two drugs use a process called Fc fusion to link recombinant factor VIII and factor IX, respectively, to a protein fragment in the body known as Fc. The process is designed to extend the half-life of the drugs so that they last longer in a person's blood than other therapies.

In the case of Eloctate, hemophilia A patients typically were controlling their disease with three infusions weekly prior to Eloctate's launch. Eloctate patients begin therapy on a once-every-four-days schedule, but that frequency can be adjusted to either three or five days, as necessary. In trials, 30% of patients took Eloctate every five days.

Alprolix improved patient burden even more. Previously, prophylactic treatment of hemophilia B involved two or more weekly infusions, but Alprolix reduces that schedule to once weekly, or less. In phase 3 trials, the median dosing interval for Alprolix was once every 12.5 days.

Reducing patient burden is an important advantage for the hundreds of thousands of people with hemophilia worldwide. Because Eloctate and Alprolix improve adherence and disease control, both drugs are winning favor with doctors and patients.

Surging sales

In what is now evident to have been a savvy move, Biogen acquired Eloctate and Alprolix when it bought Syntonix for $40 million up front and $80 million in milestones in 2007.

The market for hemophilia is estimated at north of $7 billion annually, and that suggests that these two drugs don't have to capture tremendous market share to become a billion-dollar franchise. So far, the drugs appear to be well on their way to blockbuster territory.

Eloctate and Alprolix were Biogen's fastest-growing drugs in the third quarter. Eloctate's sales grew 6% quarter over quarter and 46% year-over-year, to $132 million, and Alprolix sales improved 6% quarter over quarter and 30% year over year, to $85 million. Combined, the two drugs are currently selling at an annualized run rate of $868 million.

Importantly, sales could continue to grow, particularly as the two medicines gain momentum abroad. Both EIoctate and Alprolix are hitting the European markets this year, and in the third quarter, ex-U.S. revenue for Eloctate increased to $21.8 million from $14.4 million in the second quarter, up 51.3%, and Alprolix's international sales improved to $18.5 million in the third quarter from $17.3 million in the second quarter.

Swedish Orphan Biovitrum AB, or Sobi, commercializes the two drugs globally outside the United States, Japan, Canada, and Australia, and it will pay Bioverativ royalties on sales in those markets amounting to the mid-teens of millions.

What's next?

Biogen's current plan is to spin off Bioverativ to investors early in 2017, and tentatively, Bioverativ will trade on the Nasdaq under the symbol BIVV.

Bioverativ is already cash flow positive, and according to SEC filings, its pro forma net income totaled $61.6 million in 2015. Since Bioverativ is launching with two fast-growing drugs, cash, and little or no debt, it should have plenty of financial flexibility to fund research and development that could help it compete against larger peers in the future, including Baxalta, which was recently acquired by Shire.

Perhaps the most intriguing pipeline opportunity for Bioverativ down the road is BIVV 073, a next-generation recombinant factor protein that the company thinks could reduce hemophilia A dosing to once weekly, or less. Bioverativ hopes to move that drug into human trials next year. The company also plans to investigate the potential of gene therapy in both hemophilia A and B, and to develop a therapy for sickle cell disease, which affects 100,000 Americans.

Since Eloctate's and Alprolix's patents stretch into the mid-2020s in the U.S. and Europe, the market for hemophilia drugs is big and growing, and Bioverativ could eventually catch the eye of larger players, Biogen is one company that I'm looking forward to stashing away in my portfolio.

Author

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.
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